Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years...

Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be

	A.	$16,000.
	B.	$9,600.
	C.	$7,200.
	D.	$12,000.

Expert Solution

D. $ 12,000

Step-1:Calculation of book value at the end of year 2

Cost		$ 60,000
Accumulated depreciation		$ 12,000

Book Value		$ 48,000

Working:

Straight Line depreciation	=	(Cost - Salvage Value)/Useful Life
	=	(60000-12000)/8
	=	$ 6,000

Accumulated depreciation for 2 years	=	$ 6,000	*	2
	=	$ 12,000

Step-2:Calculation of depreciation for year 3

Depreciation for year 3	=	(Book value at the end of year 2-Salvage Value)/revised remaining life
	=	(48000-12000)/3
	=	$ 12,000

ekkarill92 answered 2 years ago

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